Published
January 19, 2022

Exploring the Virtual Land Market

In 1626, Dutch colonist Peter Minuit is said to have purchased the whole of  Manhattan Island from the presiding Lenape Native Americans for ‘60 guilders worth  of trade’, which amounts to a mere USD$1,100 in contemporary terms. As recently as  2018, the value of this land was pegged at roughly USD$1.74T. An uncharted world  not unlike 17th century Manhattan exists in the Metaverse, with virtual land  representing a new breed of speculative NFT investments that has the potential to  exponentially appreciate in value and generate outstanding returns for early buyers.  

This article will explore the market for virtual land and consider the emerging  asset class in the context of a Metaverse-oriented future society. In particular, the  following subjects will be covered: 

  1. Enter the Metaverse
  2. Leading Markets for Virtual Land
  3. 2021's Rush for Virtual Land
  4. The Virtual Land Investment Opportunity

Enter the Metaverse  

First popularized by Neal Stephenson’s 1992 epic Snow Crash, the concept of  a Metaverse refers to an adaptation of the physical world in virtual space.  Participants in these natively digital worlds interact with their environments via  avatars, essentially user-controlled characters which serve as conduits for a real 

world individual’s intended actions. Such Metaverses are also thought to include fully  self-sustaining economies that allow users to earn for their virtual efforts and expend  on virtual assets. Among the best-articulated definitions for this abstract concept was  proposed by the Acceleration Studies Foundation, which defines the Metaverse as: 

“The convergence of 1) virtually-enhanced physical reality, and 2) physically persistent virtual reality. It is a fusion of both, while allowing users to  experience it as either”.  To further clarify this definition, it may prove fruitful to outline the  fundamental properties of the Metaverse and simply define it as an amalgamation of  those attributes. At its core, the Metaverse has the following traits: 
  • Persistence: not subject to any periods of downtime and continues to operate  indefinitely, irrespective of the number of online users 
  • Concurrency: to rival the bustling megacities of the physical world, an  unbounded number of concurrent users can be present in a given  environment without technical failure
  • Synchronicity: events and experiences occur in real-time across the virtual  world and users can partake in them live 
  • Interoperability: while several disparate virtual worlds may exist in  parallel, they are all intrinsically linked in such a way that users can  seamlessly transport between them and be accompanied by any assets,  progress, or reputation they previously amassed 
  • Decentralization & community-ownership: all virtual worlds are populated  by user-generated content, and content creators are fully entitled to the  fruits of their labour without sacrifice of any benefits to centralized third party operators  

A central facet to developing the Metaverse, specifically with respect to the  properties of decentralization and community-ownership, is the existence of virtual  land. In order to fulfill its fundamental role as a shared digital space for a limitless  number of users, the Metaverse naturally must feature expanses of land which  content creators can develop to host their experiences and live events. Additionally,  in order for users to enjoy the full economic upside of their efforts, these expanses of  land must be inviolably owned and controlled by the community. To fulfill this design specification, several proto-Metaverses on the Ethereum blockchain – the most  popular of which will be explored later in this article – have leveraged NFTs to  tokenize parcels of virtual real estate and assign their ownership rights to members  of their respective virtual worlds. 

Source: NonFungible.com

While the above discussion is no doubt exciting and by many measures quite  fanciful, there remain significant technical hindrances to manifesting the absolute  conception of the Metaverse. For instance, existing concurrency infrastructure  remains too underpowered to support an unbounded number of users both  synchronously and at-scale. Additionally, there exist no universal standards for virtual world development that would allow for the interoperability that the  Metaverse begs for. Despite these challenges, sales of virtual world NFTs have  skyrocketed in 2021, signaling unprecedented levels of interest in the Metaverse. 

Leading Markets for Virtual Land  

Now having established a rudimentary understanding of the Metaverse, it is  appropriate to begin exploring some of the prevailing Metaverses in which virtual  land is sold. While 2021 has seen the Metaverse grow to become a hot-button topic in  the world of crypto and technology at large, there are only a select number of  Ethereum-based Metaverses which are responsible for the lion’s share of sales  volumes in the virtual land market. These most dominant virtual worlds include: 

Decentraland 

Arguably the most recognizable of the Metaverses on  

Ethereum, Decentraland is marketed as a virtual reality  platform that allows its community to explore user-generated  environments as well as to create, share, and monetize their own  content. The platform was founded in 2015 by Esteban Ordano  and Ariel Meilich as a proof-of-concept for allocating pixels on a  grid among users. This primitive implementation would quickly  

evolve into the 3D virtual world that it is today. Following the late-2017 Terraform  Event, where the first parcels of land were auctioned and distributed to early  adopters, the Decentraland platform officially launched for public use in early 2020. 

The native cryptocurrency of the Decentraland Metaverse is known as MANA,  and it is used to purchase in-world assets and services which include 16x16m parcels  of territory aptly referred to as LAND. The total supply of LAND tokens is capped at  90,000. With the exception of publicly-available infrastructure such as roads and  plazas, the entire world of LAND is fully community-owned. To inject the world with  a sense of thematic order, certain swathes of LAND are divided into Districts, each  of which are formed around specific interests and cater to particular audiences.  Further, users can combine adjacent parcels of LAND to form Estates, simplifying  the management of real estate holdings and making possible the construction of  grand experiences which by necessity must span multiple parcels of LAND. 

Landowners have full liberty to use their real estate as they see fit. Generally,  it is in the best interests of those who acquire LAND for non-speculative purposes to  leverage their holdings as a form of passive income. To enable this, Decentraland  offers users the tools needed to build 3D models in their territory and to impose  special access privileges on who is permitted to engage with their proprietary experiences. Part of this access control is the ability for content creators to levy  admission fees and only authorize paying users to access their content.

Novel and innovative developments have already begun to populate the  Decentraland Metaverse or are on the horizon. For instance, pioneering video game  company Atari unveiled plans to acquire a large Estate on which they will develop an  old-school arcade for users to play time-honoured classics such as Pong and Asteroids  directly in Decentraland. Additionally, digital real estate fund Republic Realm has  launched developments including an expansive shopping mall inspired by Tokyo’s iconic Harajuku and an NYSE-modeled trading floor. Other exciting developments  include a virtual gallery built by Sotheby’s for exhibiting CryptoArt as well as a 4- day music festival featuring a lineup which includes Deadmau5 and 3LAU and comes  complete with performance venues and VIP areas. 

The Sandbox 

As compared to other Metaverses which have no concretely-defined purposes beyond allowing users to experience  life in a virtual world, The Sandbox focuses primarily on building  a world for user-generated video gaming experiences. The  platform’s aim is to subvert traditional models of open-world  sandbox games such as Minecraft and Roblox by enabling users  to fully own and monetize their in-game creations. In essence, by decentralizing the processes for game development and by extension the control and  ownership of the resulting outputs, The Sandbox empowers game creators to capture  more of the value that is born of their efforts. 

IconDescription automatically generated
The Sandbox

Not unlike Decentraland and other Metaverses, LAND tokens in The Sandbox  are 96x96m plots that can be purchased via an in-game ERC-20 utility token known  as SAND. The supply of LAND is capped at 166,464, and the platform also recognizes  the concepts of Estates and Districts being formed of multiple adjacent parcels. The  Sandbox is unique, however, in its explicit definition and treatment of so-called  ‘premium LANDs’. Such parcels are situated in the vicinity of heavily-trafficked social hubs, a trait which makes them more desirable from both the monetization and  promotional lenses; that is, premium LAND owners can benefit from the fact that  their positioning in the Metaverse makes them more easily discoverable by a higher  volume of users visiting the surrounding attractions. Additionally, primary market  sales of premium LAND are bundled with exclusive, limited-time ASSETs, valuable  game-world collectibles such as non-playable characters, wearable items, and art.  

The primary use-cases for LAND in The Sandbox are to host or play games created using the free Game Maker software, with cost of admission for game being  left to the game designer’s discretion. Some games may also be free-to-play, and The  Sandbox developers have conveyed their intentions to enable the integration of play to-earn mechanisms. LAND owners can also rent out their idle parcels if they do not  have a vested interest in game development. Interestingly, LAND can also be used to  earn rewards by staking SAND, meaning landlords can retain full sovereignty over  their properties while still enjoying the capacity to earn passive income on it.  

Notable developments occurring in The Sandbox include a rendition of the  popular Roller Coaster Tycoon video game developed by Atari as well as a voxel reconstruction of hip-hop legend Snoop Dogg’s villa, which will play host to his  increasingly valuable NFT collection and serve as a location for private parties.  Additionally, the in-game map reveals that a number of well-regarded crypto  institutions, including Gemini, Binance, and Galaxy Interactive, all own sizable plots  across this Metaverse. Whether their holdings represent speculative investments or  the foundation for their own branded digital experiences is not yet clear. 

Other Popular Virtual Land Markets 

Another well-regarded virtual world is UK-based Somnium Space. Distinctive  for its focus on virtual reality technology as a gateway to the Metaverse, the virtual  world of Somnium Space was incepted in 2017 and was made available for early 

access in 2018. The team behind the project sold USD$200K  worth of virtual land in their late-2019 ‘Initial Land Offering’ as  well as over USD$1.5M over the course of their 7-week late-2020  ‘Secondary Land Offering’. More recently, Somnium Space closed  its 4-week ‘Road to Tertiary Land Offering’ having sold just shy  of another USD$1.5M in virtual real estate. In aggregate, there  are 5,000 parcels of land of varying sizes. 

In addition to standard land parcels, Somnium Space also launched the concept  of WORLDs in 1Q21. These novel virtual property holdings represent parallel  universes to which users can place teleportation portals directly on their in-game  land. User-generated content can be uploaded to these worlds contingent on their  relative sizes, allowing them to offer virtual experiences and land holdings that are  detached from yet still integrated with the foundational Somnium Space Metaverse. 

Last on the list of virtual land markets worth exploring is 

Cryptovoxels. This Metaverse comprises developer-owned  streets as well as community-owned parcels of land. As with  other Metaverses, parcel owners can terraform and build on their land holdings, allowing others to visit and engage in their offered  experiences. Notably, Cryptovoxels allows landowners to  designate their real estate as ‘sandbox parcels’, a special form of  land which is freely accessible for non-owners to also develop.  

2021’s Rush for Virtual Land  

 Mainstream attention turned towards the market for virtual land in mid-June  of 2021, when a single parcel in Decentraland was purchased for just over USD$900K.  As the most lucrative sale of virtual land on record, traditional financial and business  press – in a fit of collective awe and confusion – clamored to understand how non corporeal real estate could possibly sell at such exorbitant rates. In truth, virtual land  sales in the multi-hundreds-of-thousands have not been especially rare over the  course of 2021. While the mid-June sale for USD$900K has retained its position at the top of the leaderboard, several other parcels in both Decentraland and The  Sandbox have also sold for upwards of half-a-million dollars. Interestingly, all of the  most expensive virtual land sales have occurred on these two platforms alone, with  only a handful of sales in Cryptovoxels exceeding the USD$100K mark and no  Somnium Space sales doing the same. 

Despite Decentraland currently commanding 3 of the 5 most expensive virtual  land sales in history, there is reason to believe that The Sandbox may soon solidify its position as the premier proto-Metaverse on the Ethereum blockchain. Sales  volumes across the dominant virtual worlds reveal that The Sandbox has emerged as  the market leader, having surpassed Decentraland both in terms of value exchanged  and transaction count. Whether The Sandbox will continue on its trajectory or cede  some market share to other platforms remains to be seen.  

 

The Virtual Land Investment Opportunity  

 Though still an extremely risky investment, indicators such as the growth in  the virtual land market, the accelerating rate of development in popular virtual  worlds, and the increased buzz surrounding the promise of Metaverses all provide  strong signals of the potential upside of purchasing virtual land.  

As is the case for digital assets in general, one of the primary opportunities  presented by virtual land is the potential to realize attractive speculative gains. As  more people acquire the best-positioned parcels of land in a given Metaverse, a  market-wide fear-of-missing-out emerges among buyers who previously held great  doubts about the utility of virtual real estate. Once these buyers begin to seize any  remaining attractive plots of land, prices are driven up across the virtual world. In  addition to this cyclical, FOMO-driven price appreciation, investors who buy virtual  land are inherently placing a bet on the underlying Metaverse’s future prospects. It  follows that those Metaverses which are first to achieve a critical mass of highly engaged users will also enjoy substantial appreciation in the value of their land.  Accordingly, investors will need to gauge not only the level of exuberance present in  the market for virtual land, but also the relative user-engagement and content development metrics of competing Metaverses. 

A strategy built around virtual land speculation would historically have  yielded impressive returns. Since 2017, average land prices across the four most  popular Metaverses have enjoyed significant growth. Purchases of real estate in  Decentraland, The Sandbox, Somnium Space, and Cryptovoxels in each virtual  world’s respective year of inception would have returned roughly 18x, 41x, 50x, and  188x, respectively, given average prices at the time of writing. These blistering  returns are characteristic of NFT investing more broadly and exemplify that there is money to be made speculating on virtual land in much the same way as there is  money to be made speculating on hotly-anticipated CryptoArt drops. 

That said, the value proposition of virtual land extends far beyond merely  acting as a vehicle for speculation. For one, the Metaverse promises to be a new  frontier for commercial enterprise, and virtual land will play an integral role in  helping to realize that potential. Broadly speaking, companies can establish digital  storefronts in the Metaverse through which they sell digitized versions of their real world products. In purchasing plots of land to host their retail outlets, the Metaverse  thus acts as an additional avenue through which brands can engage with their  customers and diversify their revenue streams.  

Aside from leveraging Metaverse-based franchises as an additional distribution channel for their products, traditional companies can also look to virtual  land as a lucrative marketing opportunity. All modern-day companies rely heavily on  digital advertising for their customer acquisition and brand-building strategies, with  marketing campaigns launched through social networks, ecommerce platforms, and  even mobile games. Given the overall shift to natively digital advertising, it would  not seem far-fetched for companies to also market their real-world offerings via ad  placements in the Metaverse. To execute on this bleeding-edge strategy, companies  could either purchase plots of virtual land and dedicate them to their promotional  efforts, or simply rent space from other landlords. 

In addition to these practical commercial functions, virtual land can have  outsize implications in terms of community-building and social engagement. One of  the central pillars for the archetypal Metaverse is that it can concurrently support an  unbounded number of users as they synchronously participate in a virtual event.  While the technological underpinnings of this lofty ambition are not yet available, it  goes without saying that sufficiently large plots of virtual land would be needed to  accommodate users en masse as they collectively experience live musical performances, film screenings, product reveals, and the like. Opportunities exist for  the owners of idle virtual land to either rent their territory out for fees or use it to  host events that will help cultivate their own communities. 

Tangentially related to the matter of social capital within the Metaverse,  ownership of virtual land parcels which are thought to be historically or culturally  significant can act as a potent driver of returns for investors. Seeing as how NFT  value in large part hinges on a token’s extrinsic qualities, it would not be unusual for  certain plots of land to command greater market demand by virtue of representing 

commonly agreed-upon landmarks. In fact, the proximity of virtual land to well trafficked areas of the Metaverse is an observably important price- and value determinant. In the case of Decentraland, parcels situated near popular destinations  such as Genesis Plaza, Crypto Valley, and other touristic hotspots invariably trade  at premiums to parcels in more remote parts of the map. Thus, investments in virtual  land plots that are deemed to be culturally important, or are positioned in close  proximity to other such places-of-interest, would yield stronger returns for investors. 

A bull case for virtual land can also be made in the context of the COVID-19  pandemic and the indelible social ramifications it has had on the physical world. While a return to more pre-pandemic levels of in-person activity is sure to unfold as  the rate of vaccination increases, there will be many who continue living in blended  or remote-first environments. Those who remain confined to their homes for greater  periods will naturally seek novel forms of socialization to fill the gap left by the  absence of physical interaction. While social media platforms have historically met  these fundamental human needs, an argument can be made against the strength of  their relative engagement factors. There is reason to believe that many will seek  immersive virtual experiences that demand more active involvement than simply  scrolling through a timeline. Suffice it to say that Metaverses and the owners of  virtual land will be in prime position to address this untapped market for more high touch social interactions. 

All of the aforementioned opportunities offered by virtual land and Metaverses  represent value-accretive features that would drive returns for investors. That said,  valid counter arguments can be made to these points, not least of which is the fact  that Metaverses are still largely unpopulated. The present lack of a critical mass  inherently means that many of the aforementioned upsides for virtual land  investments are merely working hypotheses with little in the way of precedent.  Further, there remains no consensus as to which virtual worlds will ultimately  prevail as the marquee Metaverses, and the path towards a fully-interoperable set of  shared digital spaces remains ill-defined. This implies that investors are at even  greater risk of their virtual land investments imploding should their chosen  Metaverses be made obsolete by competitors. 

Closing Remarks  

Ultimately, the Metaverse holds great promise for how humans of the future  will engage in commerce and social interactions, and virtual lands are an integral  factor in the equation. That said, as with any NFTs, investments in virtual land  parcels are incredibly risky. Though prospective investors should not disregard the  practical applications of the asset class and its potential to produce commensurate  returns, investors would also be well-advised to proceed with great caution.

References  

  • Ball, M. (2020, January 13). The Metaverse: What It Is, Where to Find it, Who Will  Build It, and Fortnite. Retrieved from MatthewBall.vc:  https://www.matthewball.vc/all/themetaverse 
  • Braun, H. (2021, October 14). Decentraland Books Deadmau5, Paris Hilton and  More for Metaverse Music Festival. Retrieved from CoinDesk: https://www.coindesk.com/tech/2021/10/14/decentraland-books-deadmau5- paris-hilton-and-more-for-metaverse-music-festival/ 
  • Carmiel, O. (2021, March 19). Virtual Land Prices are Booming, and Now There’s a  Fund for That. Retrieved from Bloomberg:  https://www.bloomberg.com/news/articles/2021-03-19/virtual-land-prices-are booming-and-now-there-s-a-fund-for-that 
  • Florida, R. (2018, April 24). What's Manhattan's Land Worth? Try 'Canada's Entire  GDP'. Retrieved from Bloomberg:  https://www.bloomberg.com/news/articles/2018-04-24/manhattan-s-land value-is-an-incredible-1-74-trillion 
  • Goldstein, C. (2021, June 7). In Its Ongoing Bid to Draw Crypto-Collectors,  Sotheby’s Unveils a Replica of Its London H.Q. in the Blockchain World  Decentraland. Retrieved from Artnet:  https://news.artnet.com/market/sothebys-decentraland-1977340/amp-page 
  • Hoogendoorn, R. (2021, September 24). Snoop Dogg Moves into The Sandbox.  Retrieved from DappRadar: https://dappradar.com/blog/snoop-dogg-moves into-the-sandbox 
  • Pirus, B. (2020, March 25). VR World Somnium Space Sells 110 ETH of Virtual  Land. Retrieved from Cointelegraph: https://cointelegraph.com/news/vr world-somnium-space-sells-110-eth-of-virtual-land 
  • Republic Realm. (2021, September 17). Investing in Decentraland in 2021.  Retrieved from Republic: https://republic.co/blog/real-estate/investing-in decentraland-in-2021 
  • Sypher, F. J. (2015, August 13). News from New Amsterdam. Retrieved from New  Amsterdam History Center:  https://newamsterdamhistorycenter.org/education/schaghen.html 
  • Yorio, J. (2021, February 16). Here Comes the Virtual Real Estate Boom. Retrieved  from Yahoo! Finance: https://finance.yahoo.com/news/comes-virtual-real estate-boom-175923824.html


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